Access can accelerate an asset allocation
Mercer - Investments
Timely insights, specialist advice and investment solutions helping investors build a robust and resilient portfolio.
by Michael Brand , Global Head of Real Assets
In so many private markets, who you invest with can be as important as what you invest in. Securing access to the right manager is a critical part of building a strong private markets portfolio.
In private markets, the difference in performance between the top managers and the rest can be enormous, making or breaking the case for investing in the sector. Efforts to improve access to managers can bring a range of benefits beyond simply access to top performers, such as securing lower fees and more advantageous terms.
In private markets, the managers get to decide who to partner with, and so a lot of the time a potential LP needs to bring their own value proposition that shows why the manager should consider taking their investment. When you’re considering who you want to invest in, you often also need to be pitching them at the same time as they are pitching you.
Our due diligence process can be intense, comprising multiple rounds of meetings, reference calls, and site visits, as well as combing through lots of data, in some cases sensitive data, on the manager and its performance. If they are going to submit to a rigorous due diligence process, then they need to see the value of partnering with you.
Of course, a large part of this value comes from being a source of capital – managers want to work with investors who will be able to invest at scale, but there are also more subtle ways to offer value, for example by giving insight into how they stack up against the wider manager environment, how their terms compare, what their edge is within their category, how their materials could be improved, and more. Managers often sit within a vacuum in their own team, without a sense of their relative value, and so intelligence on their competitive position can be invaluable.
Looking at Mercer’s value proposition as an investor, our offering to managers is appealing due to our global scale – having a presence across various markets allows us to provide insights.
Access in a time of increased LP leverage
As distributions from private markets have slowed, there has been increased discussion of LPs wielding more leverage when dealing with managers during fundraising.
We believe in taking a prudent approach here: investors should always push for the best terms they can achieve with their managers, but it is also important to consider the long-term relationship in order to maintain access over the long term. Leverage in negotiations will naturally flow back and forth as part of the natural give and take of the market, and taking a long-term view can help to maintain access into the future.
Investing is a long-term game, and investing in manager relationships is no different. When done correctly, it has the potential to generate returns for years to come.
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